Labor shortage

Does anyone want to work in retail these days? That’s a big question for retailers who are well aware that finding and retaining store-level workers in the retail industry — never an easy task — has become more difficult in a strong economy with relatively low unemployment.

The nationwide unemployment rate (at press time) is at its lowest level in almost 18 years, which is the last time many retailers faced a labor crisis. Combine that with the fact that retail jobs often are seen as unappealing because of their relatively low pay and odd hours and the hiring hurdles retailers face are only magnified.

“Recruiting and retention are always a challenge, because of the nature of retail. There’s an inherent challenge that will always exist, no matter what,” said Jose Tamez, managing partner at executive search and recruiting services firm Austin-Michael.

Although overall wages have not improved as much as some economists have projected, many retailers confronted with the tightening labor market have been increasing their starting wages and other benefits to attract and retain workers. These initiatives included a flurry of announcements in connection with the Tax Cuts and Jobs Act, which, as of the end of last year, reduced the federal corporate tax rate from 35% to 21% and resulted in financial windfalls for many companies.

Proactive approach: Chuck Cerankosky, an analyst at Northcoast Research in Cleveland, said leading retailers are proactive about improving wages and benefits.

“I think the stronger ones, the smarter ones, were out ahead of the [labor] shortage,” he said. “They realized the need to staff service departments, such as pharmacies or prepared foods. To make those departments work, you have to have trained, skilled in-store staff, so these retailers were raising wages to competitive levels.”

Tax reform offered retailers that were behind in terms of benefits a chance to catch up. However, the pricing environment also remains competitive and retailers must decide how to allocate the increased cash they are seeing from tax reform.

“If a company was slow to react [to the tight labor market], now they are having to raise wages to get the people they need, and maybe they thought the reduced tax rate was all going to fall to the bottom line,” Cerankosky said. “I believe in many cases the retailer’s first inclination was to use the tax savings to strengthen their price position.”

Investments yield results: Target and Walmart have been steadily increasing their starting wages in recent years in an effort to find and retain store-level employees. There have been some signs showing the efforts are yielding dividends, including contributing to the improved performance at Walmart.

“These initiatives are paying off for our customers through cleaner stores, friendlier service and faster check-out times,” Walmart CEO Doug McMillon said during a conference call with analysts this past year.

Target, meanwhile, said that when it raised its starting hourly wage to $11 this past October, it saw a spike of more than 30% in applications for seasonal positions. (In 2018, the chain raised its minimum hourly wage to $12, beginning with existing team members in the spring, and is committed to raising it to $15 by the end of 2020.)

“But the benefits of that investment go much further than just the short-term seasonal boost,” said Brian Cornell, chairman and CEO at the Minneapolis-based chain, in a conference call with analysts. “Our leadership position on wage establishes Target as an employer of choice, and we will drive preference for years to come.”

In another earnings call, John Mulligan, Target’s executive VP and COO, said the chain already has seen a measurable increase in certain metrics as a result of higher levels of service, including increased warranty sales in electronics.

CVS, Walgreens: In February, CVS Health unveiled plans to invest a portion of the benefits of tax reform in its workers to the tune of $425 million annually. It included the introduction of an $11-per-hour starting wage for all hourly employees, which took effect in April.

CVS Health said it also would adjust the pay ranges and wage rates for many of its retail pharmacy technicians and other hourly retail employees later in the year “to ensure a competitive compensation structure that supports the company’s plans to evolve its retail stores into a healthcare destination.”

Other labor investments at CVS Health that were spurred by tax reform include absorbing the 5% increase in healthcare costs for this year, rather than passing the increase on to employees, and the creation of a new parental-leave program, which offers four weeks of paid time off to full-time employees who are new parents.

In March, Walgreens Boots Alliance said it would invest $100 million per year in wage increases for hourly employees, beginning later this year. The company’s co-COO, Alex Gourlay, announced the investment during Walgreens’ fourth-quarter earnings call.

“We’re confident what we’re doing later in this year will keep us in a very competitive situation, and we continue to invest in our people over the long-term,” he said.

Kroger: The Kroger Co. earlier this year unveiled details about how it would invest in store labor as part of its Restock Kroger plan, which also involves investments in store resets and other initiatives. The company said that rather than use the benefits it is gaining from tax reform to dole out one-time bonuses to hourly workers, as some companies have done, Kroger instead will accelerate its previously planned three-year, $500 million investment in wages, training
and development.

Kroger executive VP and CFO J. Michael Schlotman said in an earnings call that the company believes that one-time bonuses are “somewhat fleeting. We’re trying to make our investment in things that will drive retention and morale over the longer term.”

Among the benefits Kroger unveiled is a new education reimbursement plan called Feed Your Future, through which the retailer will offer up to $3,500 annually — $21,000 over the course of employment — toward education and development opportunities, including a high school equivalency exam, professional certifications and advanced degrees. It will be available to both full- and part-time workers after six months of employment.

Publix: Publix Super Markets always has hung its hat on offering high levels of service in its stores, which has helped shape its hiring strategies, according to Maria Brous, director of media and community relations at the Lakeland, Fla.-based chain. Although job applicants have become much more selective in light of the tight labor market, Publix has found success with its time-tested recruiting and retention strategies.

“One of the strongest benefits we have for recruiting and retention is the fact that we own our own company,” Brous said.

Publix workers own shares in the company through its employee stock ownership plan, which is available to workers after a year of continuous employment. Workers also enjoy a host of such other benefits as a 401(k)-retirement plan, extensive health coverage options and tuition reimbursement.

In addition, Fortune magazine has named Publix one the 100 Best Companies to Work For in the United States for the past 21 years in a